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Showing posts from May, 2009

Impression targeting?

Tito Mboweni, head of the Reserve Bank of South Africa, is a very angry man. Despite presiding over a 350 basis point reduction in the repo rate (the rate at which the central bank lends to banks) he does not see this benefit passed on to the consumer. The spread between the repo rate and the prime (base) rate is a consistent 3.5% across the board. It seems that all the banks' models use the same algorithm to compute risk. Tito wants the banks to revisit that algorithm. Last week the reserve bank invited top bank executives to dinner. Although little is known about the content of the discussions, the rate at which banks lend to individuals must have focused many minds. You must wonder how much control Tito has over the matter since banks draw less than 1% of operating funds from their lender of last resort. As things stand, Tito is playing snooker with a string for a cue stick. As the central bank cuts the repo rate the banks pretend to cut the onward lending rate. This gives